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Global Oil Supply Shock and Its Impacts on ASEAN Energy-Economy
The world is still navigating the global oil supply shock, more than two months after the Strait of Hormuz first closed on 28 February. As one of the most critical global oil and gas shipping routes, the closure of the waterway is said to create the largest supply shock ever experienced in the energy market. With almost 90% of the shipment in the Strait flows toward Asia, ASEAN is not immune to the situation. Over 50% of ASEAN’s crude oil imports have consistently come from the Middle East for the last five years. As a result, the region is exposed to risks, particularly in the energy market and economic stability, as highlighted in the Joint Statement of ASEAN economic ministers following the development. Discussions on the extent to which ASEAN Member States (AMS) are affected, and on how best to navigate the situation, remain contentious in the energy landscape.
The oil supply disruption due to the closure of the Strait of Hormuz immediately affected oil prices in AMS, which are highly dependent on the Middle East market. Among the AMS, the Philippines and Vietnam’s dependence on crude oil from the Middle East are the largest (95% and 88% of their total crude oil imports, respectively). Following them, Malaysia, Thailand, and Singapore imported more than half of their total crude oil imports from the Middle East. The dependence of most AMS on the Middle East market also exists in gas and oil products. Recent data as of April 21st, 2026, showed that Brent crude oil traded at nearly USD 120 per barrel, which is around 55% increase from the pre-crisis level in February 2026. Consequently, gasoline prices in most AMS have risen sharply, reflecting supply distortions in the oil market and higher import costs. The Philippines reported a gasoline price increase of more than 50% of the pre-supply crisis. The impacts of rising fuel prices in the Philippines have been exacerbated by the country's fuel market liberalisation system, which means that the increases in oil import prices are fully passed on to domestic consumers.
Based on the recent average ASEAN gasoline price of USD 1.4 per litre and a total oil supply of 163 MBbl (post-crisis), the economic losses from reduced oil supply in ASEAN are estimated at approximately USD 2.3 million.[1] The rise in oil prices is expected to be transmitted to higher costs for transportation, fertilizer, food, and other goods due to strong backward and forward linkages in the economy. It is also transmitted to the wider fiscal deficit in most AMS, particularly in AMS that impose fuel subsidies, such as Indonesia and Malaysia. The fiscal deficit in most AMS is projected to be 2 to 5 percentage points (pp) higher than pre-crisis levels, with the Philippines facing the highest fiscal deficit, at more than minus 5. The longer the oil crisis lasts, the more severe its impacts on inflation and GDP growth, with inflation and GDP growth predicted to rise by more than 4 pp and 2 pp, respectively.
What needs to be added to ASEAN's existing policy measures?
Most AMS have already rolled out mitigation measures to address the immediate impacts of the oil crisis, namely, demand-reduction measures to adjust to the shock on oil supply. The Philippines issued an executive order declaring a national energy emergency on 24 March, following energy-saving measures implemented in the early months. Measures include limiting travel and maximizing the use of public transportation. Government institutions are also ordered to minimize the use of electrical appliances, as was directed in Singapore. Cambodia even suspend 30% of its fuel budgets and reduce 30% of mission expenditures. Many of these countries—along with Laos, Malaysia, Thailand, and Viet Nam—have begun implementing work-from-home (WFH) schemes, particularly for civil servants.
In the power sector, Myanmar implements rotating power cuts, while Thailand’s national utility authority has set up an emergency energy monitoring centre. Even Brunei, whose supply is relatively stable and shielded from imports, has tightened fuel controls on foreign vehicles. Moreover, strengthening regional cooperation for coordinated emergency response through the APSA and for energy supply through the APGF, coordinated by the ASEAN Centre for Energy, is more crucial than ever.
Given that the spillover effects of the oil crisis extend to macroeconomic and inflation dynamics in the energy sector, ASEAN’s mitigation measures need to include the fiscal and monetary policies. Regarding fiscal policies, most AMS have announced targeted fossil fuel subsidies to curb the pace of oil price rise, with immediate effects on the wider fiscal deficit. Other fiscal measures include reducing government spending (tight fiscal measures) and reallocating the government budget to support the targeted fossil fuel subsidies.
However, fiscal policies alone are not enough to mitigate the spillover effects of the oil crisis. The rise in oil import prices will also affect the trade deficit, foreign exchange (FX) rates, and interest rates, which, if unmitigated, can lead to long-term depreciation. Managing FX rates is the most crucial aspect of ASEAN's monetary policy, as it affects the trade deficit, inflation, and financial markets. For example, Singapore announced “tight monetary policies” on April 14, 2026, by increasing the normal effective FX rate of SGD to curb inflation. The Philippines also increased its key interest rate to 4.5%. Then, Indonesia announced the foreign exchange stabilization policy as the immediate monetary response to depreciation. In response to the most recent inflation shock, monetary policy needs to be further strengthened.
As the end of the oil supply disruption remains uncertain, a coordinated and flexible mix of fiscal and monetary policies must be placed on a high-priority agenda, from managing short-term inflation to reallocating investment towards the energy transition, power grid interconnection, and energy supply diversification in the region.
[1] Authors’ calculation
